A Tale of Two States: Why Kansas and Oklahoma Rejected Federal Funding for Health Insurance Exchanges

Last week, Kansas became the second state to reject the Early Innovator Grant, a multi-million dollar subsidy from the federal government awarded to seven states for implementing the Patient Protection and Affordable Care Act. The grants were intended in part to fund the implementation of health insurance exchanges, marketplaces that would allow individuals and small businesses to "shop around" for insurance. The exchanges are intended to create competition among insurers and use transparency to lower costs. Under healthcare reform, states must implement health insurance exchanges by Jan. 1, 2013, or invite the federal government to step in and set up exchanges in their stead.

The decision by Kansas Gov. Sam Brownback and Oklahoma Gov. Mary Fallin to reject funding for exchange implementation has met criticism and approval from both sides of the political aisle. Some experts have said the rejection is foolish considering the federal mandate to set up an exchange; others have praised the rejection as a step toward repealing President Obama's healthcare reform law. Here is a brief explanation of how each governor turned down the funding. Kansas: Kansas was awarded a $31.5 million "early innovator" grant to start work on a health insurance exchange in Feb. 2011. Despite signing off on the grant in February, Republican Gov. Brownback rejected the grant six months later, saying there were too many unknowns about future federal funding and the implementation of the program.

Lt. Gov. Jeff Colyer, the governor's go-to man on healthcare issues, said Gov. Brownback rejected the federal grant in part because he was concerned about the ability of the federal government to fund exchange implementation all the way through. In a news release announcing his decision, Gov. Brownback said, "There is already much uncertainty surrounding the ability of the federal government to meet its already budgeted future spending obligations. Each state should be preparing for fewer federal resources, not more. To deal with that reality Kansas needs to maintain maximum flexibility. That requires freeing Kansas from the strings attached to the Early Innovator Grant."

Lt. Gov. Colyer said the state will find its own solutions without the funding.

While some healthcare reform opponents have praised Gov. Brownback for rejecting the funding, other Kansas healthcare leaders believe the state could have used the funding to its advantage. Kansas Insurance Commissioner Sandy Praeger, a Republican, said the rejection represented a "missed opportunity."

Kansas was one of 26 states that joined the state-led legal effort against the Patient Protection and Affordable Care Act. Just last week, a three-judge appeals court panel hearing the case ruled the individual mandate is unconstitutional but upheld the rest of the law.

Oklahoma: Oklahoma Gov. Mary Fallin rejected a $54.6 million federal grant to help the state create a health insurance exchange on April 14, 2011. Gov. Fallin previously said she would accept the money but later announced that legislative leaders had agreed to consider using state and private funds to create the Health Insurance Prviate Enterprise Network.

Gov. Fallin previously said that the state would accept the federal grant to develop the exchange's infrastructure in the face of a significant state budget shortfall. While she expressed strong opposition to ObamaCare, she said that the federal legislation was now "the law of the land" and thus required the implementation of state health insurance exchanges.

Led by Speaker Kris Steele (R-Shawnee), the Oklahoma House of Representatives drew up legislation to create a governing board for the state plan. The legislation passed by a razor-thin margin in the House before Oklahoma State Senate President Pro Tempore Brian Bingman (R-Sapulpa) announced his opposition. He said the state would risk tying itself to ObamaCare by accepting the funding.

Following Mr. Bingman's opposition, Gov. Fallin announced that Oklahoma would "not accept the $54 million Early Innovator Grant" — the largest healthcare reform grant any state had rejected at the time. She said the move "accomplishes my goal from the very beginning: stopping the implementation of the president's federal health care exchange in Oklahoma."

She wrote to state lawmakers in March that, "Unlike the federal exchange Washington may try to force on us, the exchange we are trying to build offers a positive, free-market alternative to the big government, tax-and-spend plant hat is the PPACA." Oklahoma will still pursue a health exchange without federal funding.

In response to Gov. Fallin's decision, Mr. Bingman said, "[The move] will serve as a defensive strategy that protects Oklahoma from the federal healthcare law. This is Oklahoma's solution and federalism at work. Our plan is based on the principles of the free market; it will not limit participation, it will increase competition among private plans and offer consumers the ability to shop for their best option."